It’s not unusual to have a pit in your stomach if you owe the IRS. Your tax return may or may not have come as a shock, but there’s something about being in debt to the IRS that feels different to having overdue balances on a credit card or an unpaid utility bill. Somehow it seems much more worrisome – possibly because there is no statute of limitations on the time the debt stays with you. But like all debt, there are ways to tackle it sensibly, so if you owe the IRS, maybe this will help.
If you owe the IRS, the number one piece of advice is to stay calm. Panicking just leads to people doing very silly things. Contrary to the stereotypes, the IRS is an organization which gives people every chance to settle their debts. The aggressive debt collection only occurs when they’re chasing people who are actively trying to cheat the system.
Dealing with the IRS isn’t something which creates debt, just as going to the dentist doesn’t make your teeth rot. The root cause is your actions. Not filing on time increases the debt due to penalties and any collection fees charged to you. Always meet the deadlines for filing and you won’t inflict any more damage on yourself.
The worst case scenario is that you enter the tax season without the necessary funds to pay. Paying the IRS is something you should prepare for in advance. In the event you absolutely can’t cover the bill, pay what you can. It’s a token of faith, as it shows you intend to pay and you’re doing the best you can, so the IRS is more likely to deal favorably with you. If you owe taxes it means you haven’t been so clever in preparing in advance, so as well as dealing with your debt, you should also look at how you manage your finances to avoid the same happening next filing date.
The IRS isn’t an organization which tends to negotiate. To prevent aggressively collecting from people who are in serious economic hardship, they make it possible to work out a deal. If you cannot pay your taxes, you can submit a Form 656, Offer in Compromise. If the IRS accepts this, they can wipe off a portion of the debt, or work out a payment plan for you. It doesn’t always work, especially if you’re not close to the poverty line, but there’s no harm in trying. Submitting a compromise form will not automatically trigger an audit of your accounts and assets.
A repayment plan with the IRS is a gesture of kindness. They don’t have to give you this sort of payment plan, so if they do so, always make sure you can pay on time. If you owe the IRS, the worst thing you can do is to randomly stop paying. It’s a breach of agreement and can lead to them coming after the full amount, as well as adding on penalties to your outstanding bill. If you feel as if you can’t meet the repayments, call them before the deadline. Sometimes they’ll offer a reduced repayment plan or a complete compromise on the amount owed.
Dealing with the IRS doesn’t require an expensive lawyer with a Harvard education. The independent organization the Taxpayer Advocate Service helps people who are currently trying to pay back the IRS. They have a toll-free number you can call, and they’ll review your case and see what they can do. Take note, the Taxpayer Advocate Service can’t help with every case. Someone’s finances could be in such a bad shape it requires a qualified lawyer to work with the IRS.
Sometimes, paying the IRS just isn’t possible. If you cannot pay your taxes, the debt becomes too much to handle, and when the IRS refuses to compromise, it’s time to call in the professionals. Only use this as a last resort because it will cost you money upfront, and this could damage you further if the case goes badly. A specialist tax lawyer with lots of experience fighting for their clients against the IRS can do far more for you than anyone else. It doesn’t automatically mean you’ll find some relief, but it increases your chances of being able to compromise on your IRS debt through the courts.
The most important thing if you owe the IRS is to deal with it. It is not a problem that will go away if you ignore it. Have you ever had a problem with the IRS?